Rising Debt and Debased Currencies to Propel Gold Prices to New Heights

Stubbornly high consumer prices have been taking their toll on gold as they force central banks worldwide, led by the Federal Reserve, to aggressively raise interest rates; however, a much bigger trend in the marketplace continues to support the gold market's bullish long-term outlook.

Eric Strand, founder of AuAg Funds, said that while rising consumer prices are impacting economic activity, the real threat remains global monetary policies that have increased money supplies and reduced purchasing power.

Strand noted that since President Richard Nixon closed the gold window, effectively taking the U.S. dollar off the gold standard, the U.S. dollar's value against gold has declined 97%.

"Price inflation can have many sources, but what we can see is that the long trend of lower money velocity, the number of times that money moves from one entity to another, now has turned around. The combination of unabated money printing from the central banks resulting in enormous balance sheets and higher money velocity gave us the latest price inflation," Strand said in his latest research note.

Strand said that even if inflation continues to decline, growing balance sheets will lead to further currency debasement and, ultimately, higher consumer prices. The U.S. deficit is expected to grow by $2 trillion this year, doubling last year's increase of $1 trillion.

"The monetary inflation is the number one driver of the gold price over any longer period. Gold is up over +500 percentage in USD and EUR during this millennium. Also, since 2020, gold is up +26,5 percent in USD and +32,5 percent in EUR," he said.

Looking ahead, although gold prices have been stuck in a range between $1,900 and $1,980 an ounce, Strand said that he remains optimistic that gold will see new all-time highs, if not by year-end, then by early 2024.

"As soon as the markets feel that the rate hikes are over and that the central banks again will start easing, gold will really fly. We still think this will happen this year and that our price target of 2190 USD per troy ounce for the year still stands," he said. "That would be another 14 percent in USD. Even if it, for some reason, does not happen this year, it will not be long into 2024 before we will see gold setting new all-time highs in USD."

Along with gold, Strand said that investors should look at the precious metal mining sector. Investor sentiment in the mining sector has struggled as the gold market has been stuck in neutral territory through most of 2023.

"Gold miners are cheap to buy, which makes them a great value play. They have also lowered their debt substantially, in contrast to companies in other sectors, for the last 10 years. With high dividends and a lot of M&A activity, the sector is really getting into gears," Strand said.

The AuAg ESG Gold Mining ETF (ESGO) is a specialized European-listed mining-focused exchange-traded product focusing on mining companies with low ESG risk characteristics. The ETF tracks the top 25 best-in-class ESG Risk companies in the mining sector. The Fund is managed and supported by HANetf.

Originally published by Neils Christensen at Kitco